Wednesday, 20 January 2010


"I have the impression that many people, whether in the business sector, the financial markets, or in academic and political circles, think that the post-crisis world will be quite similar to the pre-crisis one in 2006-2007. In other words, they expect the economic recovery to bring us back to where we were before the crisis.

My feeling is that those who think like that are deluding themselves. The pre-crisis situation was not in equilibrium. It was not sustainable. The crisis occurred precisely because the situation was unsustainable, both within certain countries and globally.

If the world economy were to return to the pre-crisis situation, within a short time span a new crisis would be likely to occur because the same imbalances that led to the crisis would build up again. Considering some recent developments and behaviour, and considering the way certain policies are being discussed and the thinking of some key players, such a scenario does not seem that unlikely.", Lorenzo Bini Smaghi, Member of the Executive Board of the ECB, 18 January 2010

Another way to think of what has been said is to consider that the growth from 2003-2007 was based on illusion , an economy fuelled by an ever increasing amount of private debt that ultimately inflated all possible assets.


Well, my point is if 2003-2007 GDP growth, wealth creation was based on an illusion, what to think about housing price growth during that period?...

Not convinced?

Well, overall private wage are sharply falling (unemployment, furlough, bonus etc..), GDP has been on free fall in Finland wiping out the gain made during the period 2005-2007, interest rate is almost zero and has only one way to go...on top of that the economical situation's strengh is based on temporary measures (monetary and fiscal) you still think that price will go higher. Well my forecast for seeing a deflation of housing price in the next 2-3 years by about 30% (minimum) has never been so probable...



Andrew said...

Housing Finland earlier said:

"Another thing to highlight is, if inflation down the road is getting higher and house price don't appreciate (stay stable), then in real term it would mean that price are falling...that could be a scenario if recovery comes faster than people think..."

And the banks here are now revising upwards their growth for this year. So we know a recovery is coming. It has to given the amount of money thrown at this crisis and the determination shown by the banks to restart the housing machine.

In 2000 the bankers celibrated they had avoided a recession and in fact they delayed it with bubbles for almost 8 years. Obviously they now also think the answer is to prop things up and create more bubbles.

The impression we are left with is that this is the only thing they can consider as a way forwards.

Importantly the ECB is owned by these private bankers and bini Smagi is just an employee.

HousingFinland said...

"Importantly the ECB is owned by these private bankers and bini Smagi is just an employee."

In any case, it is in their interest and in the interest of all to have a stable and functionning system...This seem to have worked for a century, why not another?

"It has to given the amount of money thrown at this crisis and the determination shown by the banks to restart the housing machine."

Real estate is a cyclical market that is driven by other factor than interest rates (valuation, demography, economical situation, unemployment etc...). Interest rates can only amplify movemnt either upward or downward.

For me the cycle ended sometime in 2007. It takes time to correct since the psychology and behaviour are lagging behing the true reality of the situation.

Now you have a thin market, where transaction have collpased and the market are driven either by sme investors traumatise by the bank collpase that happenned in 2008 and think it's safer to have hard assets (so we are talking here of wealthy individual).

As long as first time buyer are priced out , the market has not reach bottom.

Andrew said...

Housing Finland,

Just to remind you that in the last century there have been two world wars that have ripped Europe apart and countless other wars around the world europe has been involved in one way or another.

There was also the great depression etc etc.

Perhaps you meant to say the system has worked since the 1970's?

The current European situation is experimental and only been in place a few decades and europe had abnormally low rates before this crisis as a result of the last crisis.

And your predictions are that this system is going to be rocked by country and bank failures before things get better.

Maybe it is just human nature to be deluded, simply because it just feels better to be dreaming?